Rubber-stamps and digital fintech companies are difficult to reconcile

(CafeCredit.com, CC BY)

In Poland there is still a pervasive requirement to obtain official stamps on numerous documents associated with running a company. Such environment is limiting the expansion of Polish fintechs.

Banks are increasingly beginning to treat fintechs as a positive stimulus providing inspiration for development and innovation. In Poland, this is especially true of technologically advanced banks which are not burdened by obsolete IT systems. This applies mainly to mBank, Idea Bank and Alior Bank. These banks are often mentioned in reports of international companies on the progress of digitization in the financial sector.

However, the representatives of fintechs are pointing the rather low rate of growth of innovation in the Polish banks ‒ which is evidenced by the fact that no Polish institutions have so far become involved in projects associated with blockchain technology, as is the case in other markets.

The cooperation between Polish banks and the domestic startup community can be described as soft ‒ relatively few projects and growth accelerators, lack of capital commitment.

Sylwester Janik from the MCI TechVentures fund revealed at the FinTech Digital Congress in Warsaw that no Polish bank has thus far established a fund investing in fintechs. Banks including Santander, Commerzbank, Citibank and BBVA had such experiences abroad. However, we are observing the creation of certain non-banking platforms for cross-sectoral cooperation such as D-Raft. D-Raft's representative, Dorota Zimnoch is convinced that the relations between banks and fintechs are not a zero-sum game and that both sides can benefit. In Poland, mainly due to the fact that technology companies are to a lesser extent biting into the “banking pie”, and mostly serve customers who provide little or no profits to the banks.

The technological and regulatory gap between the banks and fintechs in Poland is much smaller than in the West, and therefore it is more difficult to find breakthrough solutions, e.g. in mobile payments or access to the account. The existing gaps have been, to some extent, utilized by the start-ups in the field of currency exchange, money transfers and small amount loans.

The long-term threat to banks posed by fintechs could arise from three sources:

  1. pressure on bank margins, further aggravated by the environment of low interest rates;
  2. loss of market share; and as a consequence
  3. loss of customers.

However, technology companies offering solutions in the field of finance may well face various challenges of their own. Access to capital is hardly among the major issues, however it is worth to point out the lack of preferences and facilitations for investors engaging in the initial stage of development of start-ups.

Significant challenges may result from the very growth of these companies and the complexity of business management. One problem is the finance costs of fintechs ‒ which are higher than in banks. This is due to the investors' expectations regarding the ROI - reaching up to 20-25 per cent.

Larger technology companies will also be noticed by the regulators, and this will reduce their freedom of activity and raise costs. According to Dorota Zimnoch an interesting solution was implemented by FINMA, the Swiss Financial Market Supervisory Authority  ‒ the activity of a fintech is not subject to supervision until the involvement of 20 public shareholders, provided that the total amount of investment does not exceed CHF1m.

Perhaps such an approach would be adequate for Poland. Unfortunately, Polish regulatory bodies are still lagging behind the solutions of many countries which support the fintech sector. That is why Polish companies are applying for regulatory protection elsewhere. For example, Billon, the company offering global money transfers based on blockchain technologies, has just been qualified for the final round of the British sandbox (Project Innovate) by the local supervisory authority ‒  FCA.

The nearest test for the relation between banks and fintechs will be the implementation of the EU's Payment Services Directive 2 (PSD2), which opens the access to bank data and accounts for other financial companies. This will certainly require cooperation, however, the industry is worried that it is not clear what level of access will be provided free of charge. In the long term, the EU payment directive could accelerate the process of reorganization of financial services (platformification) towards the use of digital applications, within which the customer will use the services of various banking and non-banking providers.

This will lead to solutions such as bank as a service (BaaS), where in extreme cases a banking institution is only the provider of financing and customers for non-banking technology companies. Perhaps the banks could act as the creators and managers of such platforms, due to the trust enjoyed by their brands.

However, the innovative capacity of banks remains small. Marcin Hejka, the vice president of Intel Capital, points out that 90 per cent of innovation is created in start-ups, and this takes place quicker than in the banking sector. Moreover, they are fast and more flexible in operation, even on the international scale.

One example could be the German Kreditech, also financing Polish consumers, which in only four years has developed its operations in over a dozen countries and regions ‒ from Kamchatka to Mexico. According to Michał Panowicz, the IT and product development director, it is impossible to globalize fintechs based on domestic resources ‒ a company has to be geared towards the cultural diversity of the management team which knows the individual markets.

Unfortunately, Poland has limited experience in this regard, also when it comes to the ability to attract foreign talent. According to Panowicz, the operating model should assume the internationalization of the company from the very beginning, and therefore it is best to start on two markets simultaneously, getting to know various regulations and types of customers.

That is why the Polish lending start-up Creamfinance has the IT department in Austria, the operations, analytics, risk and financing departments are located in Poland, while the sales and marketing activities are performed by the local employees in the markets on which the company operates.

Interesting experiences from the business activities of technological startups were presented by Marta Krupińska, the co-founder of Azimo, which operates on the British market, and Monika Kania from Xchanger. Both companies were created largely due to the experience of immigration and functioning in a multicultural environment. Azimo transfers funds for migrants from 24 markets to 194 destinations, unfortunately, still not from Poland, as that requires access to the bank accounts of the clients. Xchanger exchanges currencies.

Both panelists agreed that we should not talk about fintech companies from a national perspective. By its very nature, fintech is an international business, and no one care about your origin. Instead, we have to think how to position ourselves in the international value chain ‒ Polish fintechs could be the suppliers of solutions for the subsidiaries of international financial groups operating on our market (e.g. Citigroup) ‒ this is a tip from Jack Levernes from ABSL.

Poland has large resources of talented IT workers who create interesting solutions and innovations, but the ecosystem in which they operate is not very supportive ‒ this is a conclusion supported by virtually all the representatives of fintechs who had the opportunity to speak at the congress in Warsaw.

“In Poland, new technological businesses are still treated with a limited trust, which is symbolized by the pervasive requirement to have and to obtain official stamps on numerous documents associated with running a company. Rubber stamps and digital fintech companies are difficult to reconcile,” concluded Christoph Rieche, the CEO of Iwoca, a company supporting the financing of small and medium-sized enterprises.

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